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Traders suspect Bank of Japan intervention

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Pound hits 1-yr high vs dollar

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Dollar index falls to four-month low

(Updated at 2:43 p.m. ET/ 1843 GMT)

By Chuck Mikolajczak

NEW YORK, July 17 (Reuters) - The yen rose sharply on

Wednesday in a move that sparked speculation as the result of

another intervention from Japanese officials to support the

long-battered currency from multi-decade lows.

The yen has posted several outsized moves in recent days,

appreciating sharply on Thursday and Friday from 38-year lows of

161.96 per dollar, sudden rallies which market participants said

had the signs of currency intervention.

Bank of Japan data released on Tuesday suggested Tokyo

may have spent 2.14 trillion yen ($13.5 billion) intervening on

Friday. Combined with the estimated amount spent on Thursday,

Japan is suspected to have bought nearly 6 trillion yen via

intervention last week.

"The fact that the move is bigger than it is elsewhere

seems like it points to intervention of some sort, but the

timing doesn't really make sense, it seems to be coming out of

the blue as opposed to triggered by a move in volatility or a

move in the spot rate," said Karl Schamotta, chief market

strategist at Corpay in Toronto.

"Potentially we are in a situation in which traders are

trigger-happy, given the fact that the Bank of Japan is looming

in the background and that is exacerbating underlying moves.

But as it stands it is hard to tell if there is actually any

intervention going on here; we're not seeing flow data that

would suggest that it is intervention at this point."

Market participants also cited

comments

from Republican Presidential nominee Donald Trump on the

recent strength of the dollar in a Bloomberg interview published

on Tuesday as a possible cause for weakness in the dollar.

Against the Japanese yen, the dollar weakened .32% at

156.25 after falling to as low as 156.09, a level not seen

since June 12.

Japan's Ministry of Finance did not respond to requests for

comment. Japan's top currency diplomat Masato Kanda said he

would have to respond if speculators caused excessive moves and

there was no limit to how often authorities could intervene,

Kyodo News reported.

The dollar index, which measures the greenback against a

basket of currencies, was also weaker on the day, down 0.43% at

103.76 after hitting a four-month low of 103.64, as comments

from several Federal Reserve officials indicated the central

bank was getting closer to cutting interest rates.

The Fed's "Beige Book" of economic activity

showed

a slight to modest pace of expansion from late May through

early July, with firms reporting some signs of continuing

softness in the labor market.

While markets only see a slim chance for a rate cut of

at least 25 basis points (bps) at the Fed's July meeting, they

are completely pricing in a September reduction, according to

CME's

FedWatch Tool

.

The euro was up 0.37% at $1.0937 ahead of a

policy meeting from the European Central Bank (ECB) on Thursday,

in which it is widely expected to keep rates steady, putting the

focus on comments from President Christine Lagarde for clues on

the timing of the next rate cut following a 25 bps reduction in

June.

Sterling strengthened 0.32% at $1.3006 and hit a

one-year high against the dollar of $1.3044 on data that showed

UK inflation rose slightly more than expected, dampening chances

for a rate cut from the Bank of England at its upcoming meeting.

Headline inflation held at 2% on an annual basis in June

against forecasts for a 1.9% increase, while closely watched

services inflation came in at 5.7%.

In cryptocurrencies, bitcoin fell 0.21% at

$64,556.03. Ethereum declined 0.56% at $3420.38.